This article was originally published 19 September, 2008

The UK Financial Services Authority ("FSA") has announced a ban on new short positions in UK financial sector companies with effect from September 19, 2008. In addition, from September 23, 2008, all pre-existing net short positions of 0.25 % or more of the issued share capital of such financial sector companies must be disclosed.

The new rules are in addition to the requirements introduced by the FSA in June 2008 for disclosure of short positions in the companies during a rights issue period (for more information, please refer to the Sidley Regulatory Update at http://www.sidley.com/clientupdates/Detail.aspx?news=3611 ).

The rules form part of the FSA's Code of Market Conduct and apply to all participants in UK financial markets, whether such participants are regulated or not. Failure to comply with the rules will be considered by the FSA to be market abuse under the UK Financial Services and Markets Act 2000. There is a general exemption, however, for persons who act as market makers.

SHORT SELLING BAN

From September 19, 2008, no net short positions may be created or increased in securities of a UK financial sector company. A "UK financial sector company" is a UK bank, UK insurer or their holding companies, in each case where their shares are admitted to trading on a "prescribed market" (which includes all markets of the London Stock Exchange (LSE)). The FSA has published a list of 29 such companies at http://www.fsa.gov.uk/pubs/handbook/list_instrument200850.pdf .

A "net short position" is defined as "any net short position which gives rise to an economic exposure to the issued share capital of a company." The new rules state that "all forms of economic interest in shares of the company" must be taken into account. Based on the FAQ guidance released by the FSA, all financial instruments giving rise to the exposure to the share capital of a company are relevant (including contracts for differences, spread bets, options, depositary receipts and convertible bonds).

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This article has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.